Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: 1. The company's current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%. II. The company's cost of debt from the bond issuance is 9% and from the bank loan is 8%. III. The current stock price of common stock is €10, the current dividend (D) is €0.80 per share and dividends are expected to grow by 2% per year. New common stock flotation costs stand at 3% of the current stock price.
Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: 1. The company's current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%. II. The company's cost of debt from the bond issuance is 9% and from the bank loan is 8%. III. The current stock price of common stock is €10, the current dividend (D) is €0.80 per share and dividends are expected to grow by 2% per year. New common stock flotation costs stand at 3% of the current stock price.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach
Section: Chapter Questions
Problem 1BIC
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Transcribed Image Text:Calculate the weighted average cost of capital (WACC) of company ABC Inc., if:
1.
The company's current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the
coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%.
II. The company's cost of debt from the bond issuance is 9% and from the bank loan is 8%.
III. The current stock price of common stock is €10, the current dividend (D) is €0.80 per share and dividends are expected to grow by 2% per year.
New common stock flotation costs stand at 3% of the current stock price.
OA Around 11%
OB. Around 9%
OC. Around 8%
OD. Around 7%
OE. None of the given answers is correct
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